Algonquin Power & Utilities Corp. (NYSE:AQN)
Q4 2016 Results Conference Call
March 03, 2017 10:00 AM ET
Christopher Jarratt - Vice Chair
Ian Robertson - CEO
David Bronicheski - CFO
Rob Hope - Scotia Bank
Rupert Merer - National Bank
David Quezada - Raymond James
Ben Pham - BMO
Nelson Ng - RBC Capital Markets
Jeremy Rosenfield - Industrial Alliance Securities
Robert Catellier - CIBC World Markets
Thank you for standing by. This is the conference operator. Welcome to the Algonquin Power & Utilities Corp Fourth Quarter and Year End 2016 Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions]
I would now like to turn the conference over to Christopher Jarratt, Vice Chair of Algonquin Power & Utilities Corporation. Please go ahead, Mr. Jarratt.
Thank you. Good morning, everyone. Thanks for joining us on our 2016 fourth quarter and year end conference call. As mentioned, my name is Chris Jarratt. I am the Vice Chair of Algonquin Power & Utilities Corp and joining me on the call today are Ian Robertson, our Chief Executive Officer; and David Bronicheski, our Chief Financial Officer. I was thinking as I was driving in this morning that our first year end as a public entity was 1997, which makes us our 20th, which means the significant milestone.
To accompany this earnings call, we also have a supplemental webcast presentation that you can access from our website at algonquinpower.com. This presentation as well as additional information on our Q4 and year end results is available for download from our website.
Over the course of this call, we'll be providing information that relates to future events and expected financial positions, which should be considered forward-looking and I direct you to review our full disclosure on forward-looking information and non-GAAP financial measures which are also available on our website. We will read the full disclaimer at the end of the call.
On our call this morning, Ian will review the 2016 strategic achievements and David will follow with the 2016 financial highlights, and then Ian will come back and conclude with our outlook for 2017. We will then open the lines for questions and as usual I ask that you to restrict your questions to two and then re-queue.
And with that, I'll turn things over to Ian to start with our 2016 strategic achievements. Ian?
Thanks, Chris, appreciate your bringing how old we really are to the call today and that’s really helpful, so but good morning, everyone and thanks for taking the time today. In terms of thinking back to 2016, all in all we think the last quarter was a pretty good end to a pretty good year. In terms of kind of some the main topics I'd like to highlight, there's really three. So with the strong finish to the year in Q4 I think once again Algonquin Power & Utilities Corp or APUC as we affectionately refer to it, delivered a pretty strong year-over-year financial results and achieved the growth that we had set out for ourselves.
On a quarterly basis, we saw strong increase in adjusted EBITDA and adjusted earnings per share, and while the Q4 results certainly included a catch up for our CalPeco Utility that we should have received over the entire year, which obviously makes the quarter look good. I think that timing issue doesn't affect our year-over-year EBITDA and EPS growth of 27% and 24% respectively. We saw solid operating profit increases posted in both our Renewable Generation and our Liberty Utilities business groups.
I hope that everyone concludes that we are maintaining and maybe even exceeding the earnings and cash flow growth needed to support our 10% dividend growth guidance and speaking of which as we've guided for the past couple of years, I am pleased that the Board of Directors made good on that guidance with a 10% increase in our U.S. dollar denominated dividend, which on a Canadian dollar basis represents more than 12% more dividends this year compared to last year.
The second point I'd like to highlight is that 2016 saw the Company continued to expand, diversify and fortify its asset base. Our Liberty Utilities Group significantly grew its customer base with the addition of more than 300,000 new utility connections. With the completion of our Park Water acquisition early in 2016 and the closing of our Empire acquisition on the stroke of midnight New Year's Eve this past year.
With respect to Empire, we have been pleased with the seamless addition of these customers to the Liberty Utilities family and while it’s been noteworthy within our organization, I think it's a good thing that Empire's customers and communities have hardly been aware of the change, while there's a new look to the logo on the bill and the signs on the buildings. There's been no change in the reliable safe delivery of lectures in natural gas or water and the timely issuance of accurate bills.
Internally, we're feeling a sense of enthusiasm from the Joplin-based Empire employees who are now being given the opportunity to bring their best practices to the Liberty Utilities Group. The operations are both our Midwest utilities and Empire's operations have been integrated under a single Joplin headquartered regional management team.
Next 2016 was a big year for our Renewable Generation Group with 360 megawatts of new energy capacity through the completion of the 200 megawatt Odell wind project in Minnesota and the 150 megawatt wind project in Michigan and the 10 megawatt Bakersfield two solar projects in California. These projects are now fully contributing to our 2017 results.
And lastly, as a marker on the evolution and growth of the Company, APUC's common shares commenced trading on the New York Stock Exchange in December of last year, and we believe that this will allow our U.S. based employees to more comfortably participate in the ownership of our company through our stock option plan and stock purchase plan, but also to allow us to make the APUC value proposition more conveniently available to a broader audience of U.S. investors.
And this leads me to the third key takeaway for the year. Growth continues to be at the forefront of our shareholder value creation strategy. We remained firmly on track and our pursuit of significant pipeline and investment opportunities we led out at our Investor Day in late November 2016. We have already completed approximately $4 billion in new utilities, wind and solar generation investment of the $9.7 billion five year program that we outlined. Clearly, we have to set our size higher.
We are committed to strengthening our positioning in the U.S. renewable market to the purchase of safe harbor wind turbines which will facilitate the addition of up to 70 megawatt of new renewable generation capacity. Pursuing important new organic investment opportunities and customer growth within our expanded utilities group is clearly something we have focused on. I'll provide more specifics at the end of the call regarding the outlook for the 2017 development projects.
As previously mentioned, the Renewable Generation Group added 360 megawatts of net capacity to its generation fleet, as an interesting milestone the Odell and Deerfield winds farms a 200 and 150 respectively pushes over a 1 gigawatt of through the installed wind capacity. We are also pleased to have now commissioned 10 megawatts Bakersfield II Solar represent our third solar installation. You can see from the map, these additions to our generation fleet support our commitment to a diversified portfolio both in the geographic as well as by motility.
We believe that our diverse portfolio generating assets, adds important stability to the results of our new Renewable Generation Group. Within our utilities business group, we remain committed to our merge to 1 million utility customers. 2016 saw customer growth of more than 40% with the completed acquisitions of Park Water and Empire. At our investor morning in November of last year, we reaffirmed our commitment to continued customer growth with the target of doubling our 2015 customer count by 2022.
One of the key drivers of our financial results within Liberty Utilities our focus on a regulatory relationship across the states in which we served. Our proactive efforts to pursue prompt recovery of prudent capital investment is an essential part of our ability to close the gap if you will, between our allowed and authorized ROEs -- our actual and authorized ROEs going forward. And on this front, we were pleased to achieve $22 million in revenue requirements increases across five separate regulatory jurisdictions in 2016. On a percentage basis, this represents approximately 70% of our requested rate increases.
And with that summary, David I'll turn it over to you to discuss the financial results.
Thanks, Ian. Good morning, everybody. We are very pleased to be reporting what we believe to be truly impressive financial results for the quarter and the year. As Ian mentioned earlier, we have realized significant growth on both the quarter-over-quarter and year-over-year basis and certainly the value of the diversification of our portfolio continues to be apparent. Looking at our adjusted EBITDA, on the year-over-year basis, it was up 27% with strong performance of our new wind and solar facilities contributing just over $13 million of adjusted EBITDA.
We've also had successful regulatory outcomes in recent rate cases. We've contributed a further $21.4 million in the year-over-year improvement. Without the effect of FX even our adjusted EBITDA was still up over 23% truly an indicator that it is based on fundamentals in our business. Looking at our individual business units, our Renewable Generation Groups operating profit grew 15% over the year and Liberty Utilities grew by 35% year-over-year. The growth we experienced in 2016 was based on solid fundamentals in each of our underlying businesses, and we're confident that these positive dynamics will continue into 2017.
Our adjusted EBITDA achieved a growth of 24% and our adjusted earnings per share went to $0.57 for the full year. And finally our adjusted funds from the operations grew 12% on a per share basis to a $29. Last year was significant for APUC on the acquisition front with the completion of the Park Water acquisition and we will continue this trend into 2017 with the closing of Empire.
I would like to now turn our attention briefly to an update on our recent financings. Our treasury group has been quite active over the last couple of months. I'm pleased to report that our financing plan for our acquisition of Empire is now complete. We close the acquisition of Empire in January 1st and have now raised all of the permanent financing required for the transaction, executing it exactly as we planned right from the outside.
First, we set the final installment date related to our $1.15 billion ahout deal offering of convertible unsecured subordinated debentures as February 2nd, and we've now received that final installment and are pleased to report that as of today over 99% of the debentures underlying the installment proceeds have now been converted into a 107.5 million common shares. In addition as you saw from our announcement yesterday or rather on Wednesday, we have entered into an agreement to issue $750 million of senior unsecured notes on a price of basement basis with a broad syndicate of U.S. institutional investors. The notes have a weighted average life of approximately 15 years and an affective weighted average interest expense of 3.6%.
This offering was completed using our Liberty Utilities debt platform. Approximately $650 million of the notes will be used as the final piece of financing for our Empire acquisition. These notes are expected to close on or above March 24th, and then the balance of the notes approximately $100 million will be used to finance some of our 2017 growth of liberty utility, including CalPeco's Luning solar project which reached COD just recently.
And finally on the Algonquin Power side of the business, we were one of the first issuers out of the gate in 2017 with an offering of $300 million of senior unsecured debentures for our reviewable energy business here in Canada. The operating was well over subscribed and represented the largest most successful offering on our Canadian bond platform today. The offering price had an attractive 4.09% coupon and had a 10 year maturity and it was the longest tended bond that we have yet issued here in Canada.
The process of this offering will help to permanently term out the debt portion of our financing plans for several of our newest renewable power projects including Odell, Deerfield and Bakersfield too. We are certainly appreciative of the continued support that we continue to receive from the investors and the debt and equity capital markets both here in Canada and the U.S. and seeking the capital we need to execute on our growth initiatives.
Before I turn things back over to Ian, I would like to take this opportunity to briefly share some of our thoughts on the potential impacts of certain tax policy changes that are being considered in the United States. First, let me say that any analysis of the impacts of the tax changes being discussed on our business or any other business involves a high degree of speculation. Nobody really knows what the final outcome of any tax reform might be as it pretends to the U.S. as the reforms have not yet been announced.
Nevertheless, but it does seem to be some consensus around the main points of discussion which are lower U.S. taxes, non-deductibility of interest and full deductibility of capital expenditures. Everyone on the call knows our business is a mix of regulated and non-regulated businesses operating both here in Canada and the United States, financings occurring on both sides of our border and we're drilling at a pretty hefty rate of 10% to 15% per year.
We've modeled the number of the different scenarios as it relates to our business in particular and based on the scenarios we've run we see that the changes could be a slight positive from an EPS perspective and from an FFO perspective could range from a slight positive to mildly negative in the 2% to 4% range and certainly is a range which given our current growth profile is really not that significant.
But again I would emphasize that we're long ways away from knowing with any degree of certainty what the final form of that U.S. tax reform might take, and we point out that as it pertains to our regulated utilities businesses, our regulators have significant latitude in how they might handle any impact that US tax reform might have on the utilities they regulate and by extension the customers we serve.
We believe that it's in our customers' best interest that they continue to enjoy the benefits from being served by strong utilities with a low cost of capital. So, our view is that regardless of the form the tax reform ultimately takes, we would expect to be able to work constructively with our utility regulators to arrive at a framework that will preserve for our customers the benefits of a strong regulated utility.
With that, I'll turn things back over to Ian.
Thanks David, and before we open up the line for questions, I do want to provide some thoughts on the outlook for 2017 and its growth initiatives. We certainly had a busy start to the year supporting the integration of Empire, Deerfield Wind, Bakersfield solar into our 2017 results. As David noted, we've also completed necessary bond financings to term out the short-term debt which was incurred in respect of these initiatives.
In terms of the year, three big pictures emerged, a big picture objectives emerge. Firstly, 2017 will see a total capital budget of close to $1.2 billion, and I'd like to spend a couple of minutes talking about these investments. Starting with our Renewable Generation Group, these two projects currently under construction firstly Amherst Island it is finally underway with constructions of the docks needed to support bringing the materials to the island just about complete. Wind turbines are now being manufactured with deliveries expected to start in early fall.
Two comments on the project; firstly, we were pleased that the final appeal of the ERT well final so far anyway of the ERT was summarily dismissed the Divisional Court; and second, notwithstanding the increase in our expected capital cost what we've been dealing with the permitting delays. The project remains attractive with an EBT to EBITDA slightly under 10 times while the expansion of the cost being experienced in Amherst is indeed aggravating.
The second point is they are more than offset by following costs at our rate based solar projects. Project costs dropped precipitously primarily from the continuing plunge in global panel pricing. We expect Great Bay to be commissioned this fall. Secondly with respect to capital investment in our regulated utilities, we are targeting spending approximately $165 million in delivery infrastructure maintenance which represents approximately $200 for each for our approximately 800,000 customers.
Additionally, we are continuing to invest in the growth of our businesses to both serve more customers and replace operating costs with capital cost. The 50 megawatt the solar generating capacity acquired by CalPeco to replace energy which is being purchased on the market currently is a perfect example of investing capital to reduce customer bills. We are confident that our expertise and our experience will allow us to deliver on the significant capital investment budgets both on time and on budget.
Secondly, for the year we will remain focused on prosecuting existing projects and seeking new opportunities for continued expansion with our Renewable Generation business. In addition to the 150 megawatts the generating capacity currently under construction, you can see from the slide that’s just over 200 megawatts of contracted projects in development. With respect to the Chaplin-Blue Hills project, we have provided some greater clarity on the minor impact on capital cost as a result of the reconfiguration of the project west of its original location, but also the much more positive impact, the higher available wind reserve on expected production all in all the project remains highly attractive.
Switching to the Liberty Utilities investment, with investment probably in the U.S. with respect to new wind projects at the end of 2016, you'll note that we've purchased roughly 75 million of wind turbines that will qualify up to 70 megawatts of new Algonquin Power & Utilities Corp projects for 100% of the U.S. production tax credit. While these projects are qualified for the full rate PTC is completed before the end of 2020. We remain committed to properly moving ahead to commit these turbines to projects and our development teams are active identifying such sites in the U.S.
It's important to note that these turbines might also effectively be used in the greening of the Empire generation portfolio. We will be filing a notice next week confirming our intention to formally update the Integrated Resource Plan for Empire. Clearly, plunging costs of renewable energy are changing the generating landscape pretty significantly. With respect to development in Canada, we are active in the Saskatchewan and Alberta processes. We qualified for the Saskatchewan 10 megawatts solar RFP and are attending to offer into the Saskatchewan wind RFP.
Obviously, Alberta has become instantly more attractive as a result of instant 400 megawatt RFP. And we are searching for local partners to collaborate with in that process. And lastly in terms of 2017 focus, the above is not enough we will continue to drive returns to rate cases across the various jurisdictions within our Liberty Utilities Group. We have another screening of rate cases coming forward for review in 2017 representing a total of $14.1 million of requested revenue increases. The majority of the final rate decisions from these rate cases are expected before the end of the first half of 2017.
So with that as an outlook, operator, I would like to open the call up for questions.
We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Rob Hope with Scotia Bank. Please go ahead.
I was just hoping you could add some additional color on your plans on Asbury, the greening of the Empire fleet. You did note that you'd be filing a document in the coming weeks. Just wondering as we move through 2017, what are the key getting factors to get to additional wind into Empire and potentially shutdown Asbury?
I'll start by saying as this is a journey in a process for the greening of the Empire fleet. You accurately note that the very first step in that on that journey is the filing of a notice. I think March 9th or March 10th is the date for that filing. That indicates that we will formally update the Integrator Resource Plan and maybe just by a way back for the Integrator Resource Plan is our long-term plan for how we think we will optimally read most cost effectively meet the energy needs of the Empire customers.
We would expect that plan to be filed before the end of the first half of this year and then we will perceive. We will go through the regulatory approval process of socializing that plan at the regulators. And in person in that plan is the analysis that confirms that what we would be advancing, we believe is the most effective way to meet the energy needs for our customers.
You've heard me say in the past that with the following price of renewable energy, there is an economic thesis to say that the operating cost of some coal facilities and certainly Asbury falls into that category might be what more expensive than the all-in cost of building new wind given the continuing drop in that cost. I think we would see that -- and so consequently in parallel with that, we're continuing to development teams within and prior looking for sites, exploring interconnection issues, exploring in Southwestern Missouri and Eastern Kansas and I guess Northern Oklahoma site to put some of those wind projects, so that’s proceeding in parallel.
But in summary Rob, I think you need to know think about the ultimate greening of that of the Empire fleet really starting from the investment prospective, not till 2018 from -- and probably seen those projects online in 2019. So, it's not a 2017 initiative, but it certainly a journey that I think we're committed for on behalf of the customers -- and as I said, we ultimately think that this is a good think from a customer prospective. I don’t know if that kind of color you're looking for Rob
No, that was great thank you. And then maybe as a follow-up just I guess more in the near term looking at 2017 with your $1.2 billion capital budget. Just want to get a sense of how you're thinking about financing in terms of looks like you've already made some progress on the debt, but as well as tax equity and other sources of capital?
I think the 2017 plan really calls for significant investment from tax equity, and we have actually received those commitments and funds in their FFO. Again continues to be well over a third of what we expect for financing those things. We've raised some of the debt already, and we’ve a pretty strong balance sheet. We like to position ourselves so that whatever in the situation where we have to come to act, come to the market for equity, I think you can see that in our December balance sheet.
So, I think we want to continue to have a strong balance sheet. We will continue watch as this year progresses and obviously with $9 billion of capital over the next five years we will be coming to the market for summoned down activities as we communicated on our investment, Investor Day back in December, but it's not something we feel pressured in having to it today.
The next question is from Rupert Merer with National Bank. Please go ahead.
So, you had a great finish to 2016 and you gave a little bit of guidance on your Investor Day in November for 2017 for EBITDA earnings FFO. For example you're projecting 97% year over year increase in EBITDA in 2017. Are those numbers still a good reference for us now that 2016 is in?
Yes, I think obviously candidly when we held our Investor Day, we probably had a better idea than you might have had in terms of how 2016 was going to wrap up and so certainly nothing came as a surprise to us in 2016. And so when we kind of gave you those thoughts as to looking forward to what 2017 might hold, I don't think we're changing our thoughts there.
And the other thing I would also add Rupert is I think that the thought then was as you think about FX was of the context of FX mainly at the time which was closer to 135. So, there'll also be I think a factor for you to think about because I think everybody's got a different view of FX for the year.
And with the ED acquisition you mentioned that it's been a pretty seamless integration so far. Can you give a little more color on the process? How much work is left in that process? Are have there being any surprises either positive or negative so far on that transaction?
No, certainly no surprises maybe frankly to the negative or to the positive. Empire turned out to be exactly what our due diligence had indicated conservatively run, well managed utility that for a 109 years met its obligations to customers. In terms of integration, I think we had indicated that the acquisition was so not premised on synergies and cutting workforces and so we just haven't embarked on those things as they were never a part of what we had. We had a premise to win the acquisition, and so consequently I guess I got to say we should have left, not the Empire people to continue to do what they do best, but that's largely the way it's worked out.
As I mentioned in my prepared remarks, we have a consolidated hour on Midwest utility operations under kind of a broader central regional management team, which is headquartered in Joplin, and frankly made up of a combination of both the existing Joplin staff and some of our existing Liberty Utilities staff. They work very well together I think the teams share a lot of cultural similarity and so. So to be frank, it's worked out okay. In terms of the work still to do in 2017 not very much actually, we have some I'll say broader plans that include the rollout of a new customer information system and enterprise wide resource planning system.
That’s a multiyear program but it to be pricing effects all of our utilities including Empire, and I think again part of the justification for the Empire acquisition as we get this spread those accounts to across a larger customer base, but that’s kind of looking down the road 2018, 2019 maybe even 2020. Rupert, so far there isn't a lot to do in 2017. And as I said, the gas and electricity wires still flowing reliably, bills are going out. So, I think fingers cross that we don’t -- there isn’t really enough days for a hiccup.
So, it sounds like you might have capacity for another acquisition and fund should come along in the near term?
So that’s where your question was going. Well, and so maybe if on that front, I think we are -- we want to keep our eye on the landscape down in the U.S. I think I hope that people would believe that Empire represented disciplined execution from our perspective in terms of something that we can see value. We would want to make share anything we did continue without that's been front and setter.
But I think we would always keep our eyes open, and as you know that even if we were to announce something tomorrow and we are not that’s for sure 2018 kind of transaction. So, briefly a year away from doing something like that anyway, but yes, Rupert, for your records this organization doesn’t stop just because once we have got something done, we are not resting on our laurels. We have high aspirations for creating shareholder value and M&A is definitely part of that.
The next question is from David Quezada with Raymond James. Please go ahead.
My first question you mentioned pretty significant decline in power prices on your solar productivity have ongoing. I am curious if that’s consistent with I guess the general trend in reduced cost for solar or are you seeing some element of the reduced cost is a function of like an oversupply in panels currently?
It's an interesting question. To be frank, it’s a little bit hard to parse through with one hole then IRP for panels. The panel pricing comes in at $0.39 as that driven by panel manufacturer having access capacity or increasing economy as a scale and efficiencies of manufacturing. Certainly, the panel manufacturers maybe this is more anecdotal than specific. The panel manufacturers are seeing in particular -- the Chinese was seeing particular increases through -- in their efficiencies caused by volume. And a lot of that volume as you probably aware is actually dedicated to Chinese projects, but I think we are getting the benefit globally here in North America out those falling prices.
And I guess that have to be maybe the short answer to your question, I probably should have given it to you right at front -- I actually don’t know whether it's driven by manufacturing efficiencies or access capacity. But we are pretty comfortable that to the extent that the demand continues. We will see kind of pricing kind of continue on the downward trend. Broad predictions are that you're going to see 5% to 7% continue erosion in the cost of solar projects over the coming few years. And so maybe this is continued that trend.
And I guess my second question just on your 700 megawatt PTC and Safe Harbor projects. Wondering what're your thoughts on, once you get a line of sleight on building out that no matter capacity. Would you consider adding projects at the 80% tax credit level? Is that something that’s on the table or would that one would you maybe consider pivot more toward solar?
Well, it's an interesting question. What going to drive that decision from my prospective is what is the inventory of a 100% PTC qualified turbines and part of the issue, I directly point out we kind got the 1.5 billion maybe a little bit more of a project Safe Harbor. The competitiveness and after we build that out -- the competitiveness of an 80% PTC qualified projects, and then some of its going to be determined, are you actually competing against with visual 100% PTC qualified turbines. As you know we're not the only people on the planet who took advantage of that strategy to qualify PTC Safe Harbor turbines.
So, I guess my thoughts that the short answer to that question is, it will depend on how fast the market consumes the 100% PTC qualified turbines to the existing base to continued a round that’s going to make it 80% qualified project, much more complicated and much more challenged to complete. So I guess the answer is that I don’t really know, after which it's just to see, how its sort itself so. In to be frank, we don’t have very great color on the total amounts of PTC qualified turbines that are out there, but it’s a fairly big number I mean just we’re probably one of the smaller guys.
The next question is from Ben Pham with BMO. Please go ahead.
On that question on acquisitions your increase scale, you're in right now Empire did that actually increase your opportunity set for acquisitions not suggesting you will do something soon, but did that change of all considering that there has been a pretty big wave of consolidation in the last 24 months?
Well, that's an interesting thought or a great way to position it. I think undoubtedly our increase scale would allow list to pursue bigger opportunities, but then the opposite impact of that on the opportunity set is the continued consolidation. I don't think I've ever gone back and added up how many -- who fit into our filter of opportunity set before Empire versus after Empire given that the actual a total universe. I think in general though, we haven't raised the lower bar as I have been fond of saying. I think this organization has the capacity maybe even the court competency of acquiring and integrating new utilities into the family. So we will continue to be quite comfortable buying smaller utilities to the extent that they become available. But the upper end of the bar has been increased given as we crest $11 billion or so of total size over the next little while.
I think the upper end of that opportunity set has gone up and I think that's probably -- the probably added more potential target's two hour look-see then the consolidation that's taken place I think one of the things that I will just add is that the M&A marketplace outstanding acquisition of Washington gas remains a little bit uncertain given the tax reforms that may be going on in the U.S. and those can certainly have an impact on the overall value proposition. The good news is we've got nothing to announce right now but we will have to see until the tax reform starts to get clearer, does that consolidation market still remain robust.
And Ian may I ask. You highlighted the lower ranges in the past, what about the upper range? Is it more Empire percent increases or maybe something probably even bigger than that similar to what we’re seeing in some of your peers?
Yes I mean I think Emera demonstrated that in their acquisition of TECO demonstrated the art of the possible in terms of what they were able to do. Today Empire would fall well below that art of the possible from our perspective and so for sure, I think the upper end of the range maybe just to put some absolute numbers around it. You know if there was something with an enterprise value of kind of $8 billion or less I think we would take a hard look at it. Again, I want to get back to the comment about being disciplined and having a strategic rationale for what we're doing. I got to tell you growth for growth sake is still on this management team's agenda. We’ve been pleased in our ability to deliver growth in earnings per share and cast offer share to support our dividend growth of 10%. You know growth for growth sake is almost antithetical to that proposal because you just have a heavier bar as flat earnings and so thanks but no thanks to that one Ben.
The next question is from Nelson Ng with RBC Capital Markets. Please go ahead.
Just a quick clarification in the presentation it shows on the CapEx page fleet maintenance costs on the renewable side of about 45 million. Should we be thinking about this is being maintenance CapEx? And if so, does that seem high or does this include other expenses or how do you look at that 45 million and I'm thinking in terms of EBITDA from the renewable side was 217 million. So, if it is maintenance CapEx it seems like a big number.
So, the way you have to look at it's a combination of a couple of things GAAP requires as to capitalize a portion of our maintenance agreements that we have with all of the turbine manufacturers. So I would say arguably there is a part of that considerate OpEx or CapEx it's a gray zone in my mind. The true actual, I will say get all the bolts and shovels and real capital is probably half of that.
My next question is the follow-up on the panel pricing. So are you panel prices like have you fixed the cost here panel prices and fixed from an after-tax perspective here in some people have been talking about the border tax as those panels are being imported over?
Yes and so in fact our panels are largely in inventory right now. So, they are not coming in a later day so they are already in the country, clearly country of horizon, no question was China. But those panels have been manufactured been delivered in fact largely, if they have been taken for -- they certainly have been committed to be paid for maybe with they're -- it's like it will be an account payable coming up in 2017. But yes now they are here now.
If I can squeeze on more question.
Yes, we will give you one more.
There's more big picture given your wind portfolio is growing and you still have a lot of third party turbine maintenance contracts. Have you looked at in housing some of those operations in connectivity's like I know others have looked at it and I think they are seen savings but I know you have to weigh the risks versus the cost savings but can you comment on whether you've looked at those opportunities?
Sure, I think the way you set up your question is actually perfect to be answer which is until you have kind of light of 1,000 megawatts worth of capacity under operation. It's hard to be thinking that you have your economies of scale to go and do that yourself. But as you point out, we have now corrected that gigawatt of installed capacity. The short answer to your question, yes, we have looked at it. But again the way you set up the question is perfect as well and that, the operation and maintenance agreements do more for us than just change the oil and respond to tress. Baked into our maintenance and operations agreements is an an important element of warranty.
As David has mentioned in our earlier, correct, your earlier question about CapEx is those fees that we are paying have shifted reliability and longevity risk to the original manufacturer. So I think we have to be very considered in the decision to internalize those costs and internalize that operation. I think you want to make sure that you know what you are getting yourself into because you have lost that coverage that insurance policy for either plate, gear box generator. You name it in terms of insurance of systemic problems across the generator that might be in fleet. So, yes, we're looking at it. But it isn't a real simple analysis and so, but it's on our radar scope Nelson and so, it’s a good question.
The next question is from Jeremy Rosenfield with Industrial Alliance Securities. Please go ahead.
Great. Just a couple questions. First on the structure for Blue-Hill formerly Chaplain, I remember previously in the past you had mentioned that you would develop the project with similar the structure to what Red Lily had in the past and it seems a bit that the structure may have changed, so I'm curious as to is a going to be 100% ownership from the onset or maybe you could clarify that?
I think the Red Lily structure as you probably aware was kind of designed initially to be more optimal in terms of the highest thing to value some of the tax benefits. They came with the project. I think as we've looked at Chaplin, I'm not sure that the cost aggravation and perhaps most importantly the time schedule implications of developing the project along the Red Lily paradigm actually played out. And so right now, the plan is the single phase construction with where we would just continue do on a 100% of it, Jeremy.
And then just turning to the Luning solar project that’s going to go into CalPeco's rate base, I'm just wondering if that’s just captured in the most recent rate increase at CalPeco or if that is something that would be reflected in a future rate application and reflecting in rates down the line?
It has been reflected in rate now as it was a plain capital investment before we started the construction of the Luning project. We actually open a docket in front the CPUC to get prudency and frankly rate case consideration for that project. And so, no, it's not something new Jeremy.
The next question is from Robert Catellier with CIBC World Markets. Please go ahead.
I just wanted a little bit more clarity on the tax equity situation. David, I think you said about our third of the CapEx might come from tax equity. So I just want to clarify that number and then maybe you provide an update on the availability of tax equity in the U.S. in light of the uncertainty around your U.S. tax reform and the risk transfer issues that might entail? And then the follow-up there off course is why do you might have in terms of alternative financing strategy, if you don’t like the risk transfer of any PTC deal?
Okay, couple of things there just on the tax equity, I think the largest one for this year is Deerfield which reached COD, and we landed on the tax equity there being above the $150 million, and we’ve received that. So that part is in that sort of the largest part of that program for the year. As far as the availability of tax equity, we continue to have discussions with tax equity providers, the focus right now is on solar, and there does seem to be continued appetite certainly for solar tax equity projects.
We'll keep our eyes on kind of how the market shifts as far as tax equity goes for PTC deals but one thing to keep in mind is we're striving to be close to taxable ourselves and so there is some thinking taking place internally now about exactly the right point in time at which we could just become our own tax equity provider. Of course the big wildcard in that is US tax reform and you know which could shift our taxability horizon I would some more. So, it is still a bit of a question mark as far as how in the long term certainly the PTC tax equity market will shake out.
Okay and then, in the situation where perhaps you don't like the terms for the tax equity market. So how do you balance you know weighing other alternative sources of financing versus simply waiting out the period of uncertainty and then moving forward once the tax equity market opens up again. In other words would you delay projects on that basis or would you just simply move forward with the projects with another form of financing?
Rob, it's Ian. Just maybe to add a little color to David's statement, the 2017 initiatives really the only tax equity, outstanding tax equity is related to Great Bay Solar. As David said that's an ITC premised project which means that the cash attributes that are the subject of the tax equity investment are realized in one year. The problem with the PTC projects and the reason there's greater trepidation within the tax equity market related to PTC asset 10 year horizon, so I think it is important to distinguish whether entities have interest in tax equity for ITCs or PTCs and maybe just and so 2017 our growth program probably unaffected by any concerns in the tax equity markets right now because the solo focus in 2017 is on ITC based projects.
I think you're broader question is as we think about our Safe Harbor program and the roll out of the greening of the Empire fleet which is certainly premised on taking advantage of those PTC levered projects, you know I think we're -- I don't think we're in wait and see mode because we are actively exploring projects, working to identify opportunities. I think the actual financing and maybe you've hit the nail on the head as you phrase your question which is, we are obviously not going to do I'll say growth for growth sake, if our project doesn't stand on its own from an economic perspective in the context of the current price of tax equity and all those terms. Frankly, we'll just slow down and we'll focus on things that aren’t tax equity levered and you whether that continued organic in or invest in our existing utilities and work here in Canada on Chaplin and [Indiscernible] and Quebec.
And so the best thing about the portfolio from our perspective is in a one trick poly so to speak in terms of -- there is continued uncertainty in PTC tax equity market our growth comes to its reaching halt. I mean they will be disappointing but keep in mind we have until 2020 in order complete those 100% PTC levered projects. I think the tax reform well I think it will get sorted out immediately. No, they've clearly got healthcare in front of them, they got bunch of other things that are causing a delay in some of those reforms. I think at a largely base there will be clarity long before those PTC projects start to sunset. And maybe this is wrong Rob we are just feeling the pressure right now to just get something done. That’s how we are taking as a world.
[Operator Instructions] We do not have any questions at this time. This concludes the question and answer session. I would now like to turn the conference back over to the presenter for any closing remarks.
Perfect thanks operator, and thanks for everyone joining us on this, as Chris started the call, our 20th anniversary earnings call for the Algonquin organization. And obviously, as always I'd ask you stay to on the line for a review of our disclaimer.
During the course of this conference call, we may have made statements relating to the future performance of Algonquin that contains forward-looking information, including statements with respect to the expected performance of the company, its future plans and its dividends to shareholders. While these forward-looking statements represent our current judgment based on certain material factors or assumptions, actual results could differ materially from such forward-looking statements made today.
Additional information about the material factors that could cause actual results to differ materially from such forward-looking information and the material factors or assumptions that were applied in making any forward-looking statement as well as risk factors that may affect the future performance and results of Algonquin are contained in the results press release and Algonquin's public disclosure documents filed by the company on SEDAR at www.sedar.com. We undertake no obligation to update these forward-looking statements unless required by law.
Furthermore, during the course of this conference call, we have referred to certain non-GAAP financial measures including but not limited to adjusted net earnings, adjusted EBITDA, adjusted funds from operations, per share cash provided by adjusted funds from operations and per share cash provided by operating activities. These non-GAAP measures do not have any standardized meaning under GAAP and may not be comparable with other GAAP or non-IFRS financial measures presented by other companies. We refer you to the management commentary posted on CEDAR and on our website for more information about these non-GAAP measures including a reconciliation of the non-GAAP measures to the corresponding GAAP measures where a comparable GAAP measure exists. Thank you.
This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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